Wang Hongzhen
Since the release of the 13th Five-Year Plan, Chinese coal-to-ethylene glycol (CTEG) has developed quickly. However, modern coal chemical industry faces much emission reduction as the target of carbon peaking and carbon neutrality was put forward in 2021. And in the future, dealing with the carbon dioxide will increase the operation cost of enterprises, some of which will not be competitive anymore.
According to the statistics, as of end of 2021, the total China’s capacity of ethylene glycol was 20 811 000 t/a, of which CTEG took up 36.376%, and its capacity was 7 570 000 t/a. Polyester industry, a major downstream market of ethylene glycol, has slowed its growth of production capacity. At the same time, much import of polyester has impacted ethylene glycol market, making coal-to-ethylene glycol trapped into a dilemma of supply and demand.
Capacity increases quickly
Based on production processing material, ethylene glycol has three types, including processed with oil, coal made and MTO. Domestic CTEG developed late and didn’t make great progress initially because of backward process. In 2007, the first project using the coal-based oxalate method to produce ethylene glycol started operation in Tongliao GEM Chemical Co., Ltd. In December 2009, the working procedure was tidied up. By the end of 2015, only six domestic CTEG projects were launched. In 2016, oil prices increased, making more coal enterprises invest, especially in areas with rich coal resources, such as Inner Mongolia, Xinjiang and Shaanxi.
From 2017 to 2021, China’s CTEG capacity has grown from 2 620 000 t/a to 7 570 000 t/a. The capacity growth was up to 188.9%, 139.7% higher than that of total capacity of ethylene glycol. See Pic 1 for more details.
Pic 1 Capacity changes of China’s ethylene glycol and CTEG from 2017 to 2021
According to the General Administration of Customs, in 2020, with the capacity upsurge of ethylene glycol, the Chinese import of ethylene glycol 10 548 000 tons were at an all-time high, which increased total supply. The supply of ethylene glycol from 2017 to 2022 is shown in Pic 2.
Pic 2 China’s ethylene glycol supply from 2017 to 2021
Low demand in downstream market
Domestic ethylene glycol, of which 93% was used for polyester, a little for antifreeze, unsaturated polyester resin and others. Since the outbreak of COVID-19, the storage of polyester has dramatically increased. The bearish market had much storage, overlay capital and slack seasons, even the demand occasionally increased, but the price of polyester was challenging to improve.
Antifreeze, a product in the downstream, has been at the traditional peak season of production and marketing. But its small market share didn’t have much impact on the total demand of ethylene glycol. As for unsaturated polyester resin (UPR), in the first week of July in 2022, domestic utility of UPR reached 19%, 1% lower than the former week. Recently, most of plants started up but with inadequate operation, producing based on the orders. Even the State Council released a package of 33 policies from 6 aspects to stabilize economy, it needs time to make them a reality. Domestically, the UPR market price is challenging to increase in the third quarter.
Due to COVID-19, terminal textile industry may remain sluggish. Affected by foreign trade shrinking and consumption downgrading of domestic trade, it is elusive to clear the storage of textile industry, so is the order replenishment. Meanwhile, the increasing cost compressed profits, but enterprises didn’t take the initiative in raw material replenishment due to the risk aversion. Currently, the demand of ethylene glycol decreased as storage was just half level of the same period in previous years.
In July, main industries of ethylene glycol in the downstream had more frequent maintenance and reduced much working burden. The storage accumulated in slack seasons formed that of polyester enterprises, making ethylene glycol enterprises probably reduce workload. Therefore, ethylene glycol consumption is expected to decrease in July.
Poor profits
In 2020, the operation rate decreased to 56.4% as oversupply of ethylene glycol emerged. In 2021, the enterprises in Europe and America had the equipment repaired due to the extreme cold weather, COVID-19 has become a long-term problem, freight charges of ocean shipping increased, and the transportation flow of imported material changed, all of which made imports of domestic ethylene glycol decrease. And overall operation workload of ethylene glycol was merely 57.6% as output increased. Pic 3 shows operation rate of ethylene glycol from 2017 to 2021.
Pic 3 Operation rate of China’s ethylene glycol
Coal prices decide production cost of CTEG. However, domestically, not all areas have the same coal prices, which determines the difference of CTEG’s production cost. And West China is relatively low while East is on the contrary. In June 2022, limited by the rapid growth of port inventory, the price reduction of coal material resulted in that of ethylene glycol. And the poor profits of ethylene glycol led to the loss of much equipment. In June, CTEG cost was around RMB6 560 to 6 600 per ton, but during the same period, the price of ethylene glycol fluctuated between RMB4 300 to 5 200 per ton. And the loss of CTEG is around RMB1 780/ton.
Increasing CTEG profits can be considered from cost, processing, and ethylene glycol prices. Oversupply made ethylene glycol challenging to decrease. As for cost, due to the work deployment of the state Council to stabilize supplies and prices, coal price is expected to be stable. And for process, increasing profits requires the constant improvement of production technology, controlling on the output of byproduct and reasonable utilization of byproduct resources.
